London close: Stocks end well off session lows, long-term Gilts surge

Stocks in London finished well off their session lows in the aftermath of the Brexit vote, amid a sharp drop in the pound and a surge in benchmark 10-year Gilts.

On Thursday, after 43 years, and in a historic referendum, the UK voted to leave the EU.

The Footsie finished 199.41 points or 3.15% lower at 6,138.69, led by losses in shares of homebuilders and financials, but nonetheless outperformed European equity benchmarks by a wide margin. Out on the second-tier index, it was a different story, although it too managed to recover nearly half of the day's losses, with the FTSE 250 closing down by 1,245.46 points or 7.19% to 16,088.05.

Shortly before the start of trading, the Bank of England issued a statement saying that it was monitoring developments closely. The European Central Bank followed shortly afterwards with a similar message.

In another shock development, the Prime Minister announced he would step down.

Among other things, that appeared to take off the table the possibility that Article 50 of the Lisbon Treaty would be triggered - starting the two-year countdown to legally finalise the UK's exit - in the immediate near-term .

On a hopeful note, speaking from Berlin German chancellor Angela Merkel warned against drawing "quick and simple conclusions [on Brexit]" that might create new and deeper divisions.

That might be important in so far as some economists, such as those at Morgan Stanley, argued that whether the 'divorce' with the EU was 'civilised' or 'acrimonious' would determine the extent of the economic fallout and how the Bank of England might need to respond.

Jacob Nell and Melanie Baker at Morgan Stanley said: "We think that the uncertainty after a vote to leave will have two immediate effects.First it will hit sterling, as uncertainty reduces non- residents' appetite or UK assets against the background of the UK's record current account deficit. Second, it will hit growth, as firms hold back on investment, and households increase precautionary savings. Longer term, we expect a less open and more volatile economy, with reduced inflows of capital and labour, and a lower rate of potential growth."

Following the referendum result, economists at HSBC cut their forecast for the rate of growth in UK gross domestic product in 2017 from 2.1% to 0.7%. They also revised their projection for CPI inflation next year to 4.0% from 1.7%.

For Simon Wells, HSBC's chief UK economist, the most prudent course of action for the Bank of England would be to let any initial panic subside and make a more considered assessment before lowering Bank Rate.

"The UK now faces a period of intense political and economic uncertainty. The voting pattern also highlighted deep divisions in opinion across the country."

Alberto Gallo, head of macro strategies at Algebris Investments, was considerably more pessimistic, telling Bloomberg TV the economic impact of Brexit on the UK might be potentially quite serious.

Over on the Continent, shares got walloped, with Germany's Dax down by 6.82% or 699.87 points to 9,557.16 and the Cac-40 off by 8.04% or 359.17 points at 4,106.73.

Cable finished lower by 8.26% at 1.3648 - having hit a 30-year low during the session - while the US dollar/yen cross was off by 3.66% to 102.27. The yield on the benchmark 10-year Gilt plummeted 28 basis points to 1.09%.

Other asset classes were seeing similar moves, with front month Brent crude futures down by 4.431% to $48.74 per barrel on the NYMEX, while gold futures on COMEX jumped 4.57% to $1,320.60/oz.

FTSE 100 giants express confidence in the outlook

In the long-term, IAG did not expect the UK's decision to have a "material" impact on the business but it no longer expected to register an increase in operating profits in 2016 similar to the previous year's, the company said in a statement.

Aviva did not expect the Leave vote to have any significant operational impact on the company. The life insurer emphasised that its operations in the UK and its other subsidiaries in the European Union were well-capitalised and continued to trade as normal.

Deutsche Boerse and London Stock Exchange said they remained fully committed to their $30bn merger on Friday, reiterating that the outcome of the EU referendum played no part in the deal. The companies said in a joint statement that the referendum does not impact the compelling strategic rationale of the merger.

Market Movers

FTSE 100 (UKX) 6,138.69 -3.15%
FTSE 250 (MCX) 16,088.05 -7.19%
techMARK (TASX) 3,048.00 -1.57%

FTSE 100 - Risers

Randgold Resources Ltd. (RRS) 7,370.00p 14.18%
Fresnillo (FRES) 1,387.00p 11.86%
ARM Holdings (ARM) 1,080.00p 5.99%
Compass Group (CPG) 1,350.00p 3.93%
GlaxoSmithKline (GSK) 1,482.00p 3.71%
Mediclinic International (MDC) 986.00p 3.52%
AstraZeneca (AZN) 4,031.50p 3.41%
Relx plc (REL) 1,283.00p 3.22%
Pearson (PSON) 914.00p 2.93%
British American Tobacco (BATS) 4,385.00p 2.56%

FTSE 100 - Fallers

Taylor Wimpey (TW.) 136.10p -29.26%
Persimmon (PSN) 1,520.00p -27.55%
Barratt Developments (BDEV) 439.80p -23.84%
International Consolidated Airlines Group SA (CDI) (IAG) 409.00p -22.54%
Berkeley Group Holdings (The) (BKG) 2,590.00p -21.07%
Lloyds Banking Group (LLOY) 57.00p -21.00%
ITV (ITV) 174.40p -20.44%
Legal & General Group (LGEN) 190.90p -20.26%
British Land Company (BLND) 612.50p -19.54%
Royal Bank of Scotland Group (RBS) 205.30p -18.04%

FTSE 250 - Risers

Acacia Mining (ACA) 400.00p 16.96%
Centamin (DI) (CEY) 120.30p 10.47%
Polymetal International (POLY) 922.00p 5.80%
NMC Health (NMC) 1,270.00p 5.03%
JPMorgan American Inv Trust (JAM) 300.40p 2.77%
Worldwide Healthcare Trust (WWH) 1,830.00p 2.52%
Fidelity China Special Situations (FCSS) 141.10p 2.25%
Sophos Group (SOPH) 182.00p 1.62%
Scottish Mortgage Inv Trust (SMT) 261.10p 1.56%
JPMorgan Emerging Markets Inv Trust (JMG) 593.00p 0.94%

FTSE 250 - Fallers

Aldermore Group (ALD) 143.40p -32.04%
Crest Nicholson Holdings (CRST) 430.00p -26.50%
Virgin Money Holdings (UK) (VM.) 275.30p -24.86%
Derwent London (DLN) 2,587.00p -24.58%
Bellway (BWY) 2,060.00p -24.47%
Bovis Homes Group (BVS) 775.50p -24.27%
Grafton Group Units (GFTU) 543.00p -23.74%
Great Portland Estates (GPOR) 599.50p -22.19%
Marshalls (MSLH) 253.90p -21.88%
Pagegroup (PAGE) 311.30p -21.57%